VA Loans: Can A Self-Employed Person Get a VA Home Loan? Part Two
In our last blog post we discussed VA loans for self-employed and freelance workers. The Department of Veterans Affairs does have provisions for veterans who are self employed and want to get a VA guaranteed home loan. Just because a freelance or small business owner’s income isn’t “traditional” doesn’t mean the vet can’t qualify for a VA mortgage, but such situations do have a few unique or modified requirements.
The VA requires individual tax returns and all “applicable schedules” for the past two years or more, plus a profit and loss statement for the current year if taxes have not already been filed. The VA rules also state that if the self-employed borrower runs a cooperative business or partnership, the borrower must submit “copies of the signed federal business income tax returns for the previous 2 years plus all applicable schedules, and a list of all stockholders or partners showing the interest each holds in the business.”
Self-employed or freelance VA loan applicants should pay close attention to the rules for stable income. The VA Lender’s Handbook states, “Generally, income from self-employment is considered stable when the applicant has been in business for at least 2 years. Less than 2 years cannot usually be considered stable unless the applicant has had previous related employment and/or extensive specialized training.” The VA rules add that “in-depth development” is required for stable income documented for less than a single year.
For self-employed income, the VA instructs loan officers to “…analyze the general economic outlook for similar businesses to determine whether the business can be expected to generate sufficient income for the applicant’s future needs.” Business and market trends could play a factor in some cases, especially if business records indicate a decline in earnings over the documented period of time represented by submitted paperwork. Some businesses are difficult to analyze when it comes to market trends and the future of a particular industry. In these cases, self-employed borrowers should understand the following from the VA Lender’s Guide:
“If the business is unusual and it is difficult to determine the probability of continued operation, obtain an opinion on viability and future earnings, and an explanation of the function and financial operations of the business from a qualified party.”
VA loan underwriting requirements are, as evidenced from some of these excerpts from the Lender’s Guide, created with a degree of flexibility. The VA allows lenders to exercise judgement in areas such as these in order to give the borrower (and the lender) the best possible chance for success, where warranted. In cases where the outcome doesn’t look good, a VA lender may choose not to approve the loan, but self-employed borrowers are not barred from trying again once conditions are more favorable.